May 7, 2015
Sluggish first quarter growth grabbed headlines as April waned. The advance GDP estimate showed a 0.2% annualized growth rate for the first three months of the year, lower than economists’ projections and quite a bit lower than the 2.2% growth we saw in the fourth quarter. Consumer spending, which grew at a respectable 1.9% rate, came in about as Chief Economist Scott Brown expected but less than half the 4.4% pace at the end of last year. The deceleration came as Federal Reserve policymakers met to discuss the economy and when they might begin raising short-term interest rates.
We saw a similar pattern last year, as winter weather took a toll on first-quarter growth. This year, the economy had to contend with bad weather, West Coast port delays, as well as a contraction in energy exploration and the stronger dollar’s effect on exports. As Federal Reserve policymakers see it, these restraints should be “transitory.”
Despite some slowing in job growth in March, the labor market has continued to improve, with gains led by hiring at small- and medium-sized firms. The drop in oil prices over the last year has boosted consumer purchasing power. Combined, these two forces should drive consumer spending growth in the near term.
Federal Reserve officials continue to expect that economic conditions will warrant an initial increase in short-term interest rates by the end of this year. The more important question is the pace of policy tightening beyond that first rate increase. That pace is expected to be gradual.
The Fed also will have to pay attention to reaction from the financial markets. Chief Investment Strategist Jeff Saut expects that the Fed will want to see how the fixed income markets, the equities markets and the economy respond before raising rates again. Jeff continues to favor the upside, writing: “I don’t see anything leading me to believe there is a big downside move in the works. … I think we are at the Guarded Optimism stage with Enthusiasm, Exuberance and Unreality yet to come before the secular bull market is over.”
For their part, the major domestic and international stock indexes continued their steady climb upward in April, although they faced some volatility during the second half of the month which erased some of the gains. The S&P 500, Dow Jones Industrial Average and Nasdaq landed in positive territory, but just barely. The global EAFE index, though, ended up more than 4%.
|4/30/15 Close||3/31/15 Close||Change||Gain/Loss|
|Performance reflects price returns as of April 30, 2015. MSCI EAFE as of April 29, 2015.|
I’ll continue to monitor the latest economic data and developments from the Fed, as well as any news from the domestic and emerging markets. And, I’ll be sure to share any trends that could affect your long-term financial plan.
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Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. The performance noted does not include fees or charges, which would reduce an investor’s returns. There is no assurance the trends mentioned will continue.